The black economy in the restaurant sector

black economy

Just how pervasive is the black economy in the restaurant sector? And what can be done about it? By Zoe Meunier

A cash-dependent black economy has been casting a shadow over the restaurant industry for decades. While this is no secret to the majority of those who work in the sector, at last a united effort is underway to counter these insidious practices and create a more level playing field for all.

Restaurant and Catering Australia (R&CA) has been leading the charge to stamp out the black economy, working closely with the federal government’s Black Economy Taskforce to ensure a whole-of-government approach is taken to remedy the situation.

“We don’t condone any behaviours associated with the black economy and frequently advise our members to ensure they are compliant with the relevant legal and taxation frameworks,” says James Coward, PR and policy officer at R&CA. “At the same time, we’re strongly advising the federal government of the best ways to minimise the behaviours in the black economy and to ensure that compliance is as simple as possible.”

While widespread throughout the restaurant sector, the black economy—which encompasses both people operating entirely outside the tax and regulatory system and those who are known to the authorities but do not correctly report their tax obligations—is notoriously hard to detect.

“The government has made estimates of how prevalent they think the black economy is, but because this behaviour is very difficult to monitor it’s hard to approximate how often it’s occurring and whether it’s getting better or worse over time,” says Coward.

Unfair playing field

The black economy can be detrimental to the industry in a number of ways, but mostly—as evidenced by a survey conducted by R&CA, because it creates an unfair playing field between those who are doing the right thing and those who are operating outside of the correct legal and taxation framework.

“One of our members identified in our survey that they were having difficulty attracting staff because of their reputation of being strictly non-cash payments only, which we find very concerning,” says Coward. “That was based on an awareness within the community that there were other businesses in close proximity that were paying cash wages.”

This finding also highlights a factor undermining the industry that is rarely acknowledged by the government—that cash payments are not always at the instigation of the employer.

“While drivers to the black economy are obviously multi-faceted, a lot of it is being driven by employees requesting their wages be paid in cash because of things like government and welfare payments, and trying to avoid government detection to get around the limits placed on them, or, say, international students with visa restrictions who want to avoid being detected.”

The cost of technology

Another pressure on the black economy is that brought about by modern technology and the advent of contactless credit card payments such as PayPass and payWave.

“Small businesses are incurring very large costs to offer these forms of payments to consumers who demand them,” explains Coward. “They are very reluctant to pass on surcharges to customers to cover these costs for fear of backlash and we think it’s necessary for the government to address the issues at play here so businesses who do operate as cash-only premises actually have an incentive to offer these non-cash forms of payments.”

“We don’t condone any behaviours associated with the black economy and frequently advise our members to ensure they are compliant with the relevant legal and taxation frameworks.”—James Coward, PR and policy officer, R&CA

In R&CA’s survey, one member stated their costs of offering non-cash forms of payments were between $4000-$5000 a year, while another noted a 130 per cent increase in their bank charges since adopting payWave, costs Coward says are “prohibitive” for a small business.

“A great source of frustration for business owners is that consumer trends have changed over time yet they feel they’re being penalised because of the actions of the banks as well.”

Another unfortunate by-product of non-cash payment methods is a reduction in the practice of tipping. In R&CA’s member survey, 71.2 per cent of businesses reported a noticeable reduction in tips when customers chose to pay their bills using credit cards, resulting in an additional disincentive to offer these forms of payment.

This is only enhanced by the traditionally very low profit margins experienced in the hospitality sector—estimated collectively by the ABS as 4.2 per cent—attributable to factors such as higher wage costs, penalty rates and other staff costs such as training, payroll tax and workers’ compensation.

R&CA asserts that it’s essential to pursue policies that will create a business operating environment more conducive to offering non-cash forms of payments.

A better system

To assist the Black Economy Taskforce, R&CA has presented them with two submissions and participated in several industry meetings and roundtables with Black Economy Taskforce chair Michael Andrew, and provided comment on the Taskforce’s interim report.

In R&CA’s submission, they listed one of the biggest drivers impacting the prevalence of the hospitality industry’s black economy as the burden of overregulation and red tape, something they are happy to see has been explicitly acknowledged in the Interim Report.

“The Taskforce has acknowledged quite a few of R&CA’s policy recommendations and we’re very pleased they’ve done that,” says Coward.

However, not all of the recommendations in the Black Economy Taskforce’s interim paper were met with agreement by R&CA, who are disputing some of their suggestions, such as applying a minimum tax rate to the cafe and restaurant sector based on the idea that the Australian Tax Office has deemed it a higher risk sector.

“We’ve strongly disputed that in our supplementary submission, saying we think such a proposal would actually entrench an unfair playing field rather than address it,” says Coward. “We’re proposing that individual sectors shouldn’t be discriminated against based on a speculative notion such as that.”

The Black Economy Taskforce is due to present its final report to the Government in October, who will decide on their recommendations after that.

“We’re obviously waiting to see what the final recommendations will be with great anticipation,” says Coward. “We would hope the Black Economy Taskforce fully responds to the points that have been raised in our submission and during our consultation and feedback.”

This great content is produced for members of the Restaurant & Catering Association. Find out about becoming a member here.

Restaurant & Catering magazine and its associated website is published by Engage Media. All material is protected by copyright and may not be reproduced in any form without prior written permission. Explore how our content marketing agency can help grow your business at Engage Content or at YourBlogPosts.com.

Post a Comment

Your email address will not be published. Required fields are marked *

Get our iPad/iPhone app

All our content beautifully designed with searchable and at your fingertips
Download now

Subscribe to our newsletter

Want stories like this delivered to your inbox? FOR FREE!
SUBSCRIBE!
Give it a try, you can unsubscribe anytime.